Not so long ago, marriages that made it past the raising of children survived. That has changed. Now 1 out of 4 divorces involve couples who are 50 years or older. When spouses in this age group divorce, it is referred to as a Gray Divorce. The problems encountered by older people divorcing are unique and complex, largely because there is almost no time to rebound, and retirement is fast approaching. The financial issues are complicated. The other looming issues in a gray divorce are healthcare, insurance, the division of retirement assets, and estate planning.
There are many reasons why the divorce rate among people over 50 years of age is increasing. Some of the reasons include that some couples stay together because of the children, and divorce only after the children are raised. Other divorces happen when a spouse retires and the couple learns that they no longer want to spend time together. Some couples put off divorce for financial reasons. It seems to me that people in my generation – the baby boomers – prioritize happiness and are not willing to stay in a bad marriage – so they divorce.
ASSET DIVISION IN GRAY DIVORCE AND THE MONETARY AWARD
As with any divorce, the usual result in a gray divorce is that each spouse ends up with half of the marital estate. The marital estate includes property that was acquired during the marriage. It does not include property that was acquired before the marriage, has been acquired by gift or inheritance, or property excluded pursuant to agreement. The result from an equal division of the marital asset may be very unfair. One spouse may be significantly more well off than the other.
What Happens To The Retirement Assets In A Gray Divorce?
With divorce Maryland is an “equitable” division State. This means that the courts divide the marital property “equitably” between the spouses. In practice, the division is almost always equal. However, in instances of divorce where one party will have substantially more asset than the other (because of inheritance, gift and so forth), the court may award the other spouse a “monetary award”. A monetary award is an award of marital asset made to the spouse with lesser asset or lesser earning potential. If you are considering divorce, and you suspect that either you or spouse will be substantially better off than the other, you should consult with a divorce attorney before discussing this issue with your spouse. You should learn what property allocation is likely; what you should anticipate. There are factors that will affect the division of assets. This information is critical in planning for a divorce.
INCOME CONSIDERATIONS IN GRAY DIVORCE
If you are facing a gray divorce, that means retirement is looming, and your income will most likely decrease substantially. You will likely begin to consume your assets. There will be limited time to rebuild your financial profile after your divorce. Your lifestyle will certainly change. Unsuspected costs, like health insurance needs, may be a problem.
It is advisable that you anticipate what income you are likely to have after your divorce. You should know what will happen to the retirement assets acquired during the marriage upon divorce. You should know what Social Security income will be available to you. You should know whether you may have to pay, or if you will receive alimony. If you are not working and facing a gray divorce, you should know if there will be an expectation that you return to work, and if so, how that expectation will affect any potential alimony award. The sources of your monthly income will change. You should estimate what your income will be and what your financial needs are. Once you have considered these variables, you should plan how you are going to live within your means.
RETIREMENT ASSETS IN GRAY DIVORCE
The division of retirement assets pursuant to divorce can be devastating. The retirement assets acquired during the marriage are almost always equally divided between the spouses. It is much more difficult to live on half. It is so important to plan for your future when preparing for divorce. Downsizing is almost always necessary. Often times people can not retire “on time” when they divorce later in life. Retirement may need to be postponed because of divorce.
You must avoid contested divorce litigation at this time of life. Very often divorcing spouses use their 401k assets to finance their divorce. Courts consider using retirement assets to fund divorce a valid expense, the consuming spouse is not penalized. There is just less to go around, not to mention the tax penalties.
If you are facing a gray divorce, you should consult with an attorney to explore the likely financial consequences and recommended choices.
FUTURE HEALTH CARE AND COST IN GRAY DIVORCE
If you are considering divorce the cost of health insurance must be considered. A spouse can not insure their former spouse after divorce. Each spouse must secure their own insurance. The cost of health insurance can be astronomical and must be considered when planning for divorce. An alternative to divorce may be an option. In Maryland you can get a “limited divorce”, which is akin to a “legal separation”. You are still technically married, and eligible to file joint taxes, insure your spouse, and transfer property between yourselves without tax consequences. This alternative is becoming more popular among spouses facing a gray divorce.
OTHER CONCERNS IN GRAY DIVORCE
It may be advisable that you prepare a Will as you are going through the divorce process. You should prepare another will once you divorce.
Your Adult Children
You may want to consider making agreements with your spouse as you prepare for a divorce. Consider if you would like an agreement to share wedding costs, college tuition, or other types of support that you give your children now.
It is wise to meet with a financial advisor before beginning the divorce process. Prior to meeting with your advisor you should have an understanding or what your post-divorce income and assets will be, how long you will continue to work and what your monthly expenses are likely to be.